Brazilian regionals defy-recession
TAM: pure lateral thinking W
hen 98 per cent of its passengers are men, most of them are businessmen, and load factors suddenly slip with the economy, how does a regional airline boost its traffic? The answer is simple —give women a discount. It is this kind of pragmatic marketing —introduced just three months ago, but coupled with a long-standing programme designed to foster a close identity between airline and local community —which Rolim Adolfo Amaro believes will lead to continued success for TAM, the Sao Paulo-based regional carrier of which he is president. Operating six F.27s and fl Bandei rantes on an extensive network within Sao Paulo state, but with "fingers" into six others, TAM is demonstrating the flexibility which a small privateenterprise company needs to apply if it is to survive in Brazil today. Results so far have been spectacular. TAM had been in the air-taxi business for 13 years when, in 1975, the Government decided to formulate a national policy for regional airline networks, after the major domestic carriers acquired jets and abandoned many local services. TAM has been operating scheduled services in the tough commercial environment of Sao Paulo state ever since, with the objective of providing an integrated network of high-frequency services. Sao Paulo state is the richest, and therefore potentially the most lucrative, region of Brazil for airline operations, but because the area has been highly developed for 20 to 30 years, it provides localservice airlines with severe competition not only from trains and about 100
As the Brazilian economy slumps and inflation runs riot, Peter Middleton and Patrick Knight report from Sao Paulo and Belem on why t w o remarkably dissimilar regional carriers are still confident of survival and success.
H
Krfr^: WB^H B^^. ^^A
*"j^jMj^fc^H i
m ZS
Rolim Adolfo Amaro, president of TAM, is weighing the advantages of the F.28 and the 146
50-seat buses, but from the private car. Even when total traffic was down, however, TAM always grew. Sometimes the growth was explosive, such as in 1980 when a 58 per cent leap in passenger-km accompanied the introduction of F.27s. This was achieved with only a 3-5 per cent drop in overall load factor, which remained in the mid-fifties. Even in 1982, the airline achieved a creditable 8 per cent growth, but load factors for the first five months of this year began to reflect the state of the nation's economy and dipped into the
forties, spurring Amaro into the detailed traffic analysis which led to the unconventional marketing strategy, aimed at women and non-business travellers. Far from resigning itself to a cutback in passenger numbers for 1983, the airline is now predicting that half a million people will board its aircraft this year, compared with 335,000 in 1982. The crux of the problem, and paradoxically the basis for Amaro's optimism, lies in the fact that up until June this year TAM had been almost exclusively a businessmen's airline. About 70 per cent of all passengers were identified as male entrepreneurs running small and medium-size companies, and almost three-quarters of them fell into the 25-60 age group, as might be expected. Since all of them were already travelling at least 12 times a year, this did not give TAM much scope for boosting traffic during a sharp economic downturn. So, in June, the airline took heed of its market research and embarked upon a major offensive against falling load factors by halving fares for all women and for those men younger than 21 and older than 60. By this means, TAM reduced the cost of its air services to that of the bus for those people who normally travelled by bus. Carriage of women shot up from 600 to
11JCIIT International. 17 September I9S:S
3,200 in the first month, even Now, with seven years of without publicity. Bv the successful operation to its second month, TAM's" 6,000 credit, some of the airline's women passengers represectors are vulnerable to sented a 20 per cent traffic predation by jet operators, boost, and Amaro expects the and Amaro describes his trend to continue. network as being like a sexy lady, disporting attractive But what is the limit? He legs to bigger carriers. says that there isn't one because even the depressed What will finally give mid-forties load factor being Amaro tranquility is protecachieved on full fares in May tion of his markets by acquisiwas still above break-even, tion of jets. He hopes to make and the 67 per cent load a decision within months, and factors of late July were is "waiting for offers" from generating greater profit, Fokker and British Aerodespite the heavy discounting. space. Models of both the Amaro expects to start losing F.28 and the 146 are within money, however, in his drive easy reach of his desk, and he to get even more people into is evidently well practised at the habit of flying with TAM. placing them nose to nose. The next, and potentially Three factors govern the more profitable, step is to jet decision. First, highintroduce a three-tier fares frequency services have been structure, designed to even the lifeblood of the airline, out load factors through the and Amaro will make sure day. Amaro proposes a red that he has pushed them to "smile" ticket at 50 per cent the limit before acquiring discount, valid from 10 a.m. to larger aircraft. Secondly, if oil 3 p.m. and after 9 p.m.; a blue prices start going up again, One of TAM's six F.27s in typical surroundings at Ribeirao Preto (30 per cent discount) ticket, — TAM will stay with valid all day for under 21s to get them into Careful exploitation of this basic turboprops. The major factors, however, interest payments, and the the TAM habit; and full-fare white tickets human need "to belong" will continue to are balance" of Brazil. for the early morning and evening peaks. be one of the airline's fundamental strate- "commercial High frequency direct services will gies. This even manifests itself in the "Whoever buys in dollars is digging a hole continue to be the key to successful imple- reservation system, which is on line to the for himself.... It is not a sound idea to mentation of TAM's philosophy of VASP computer but adds its own personal get a dollar commitment today". providing an integrated route network, touches, such as telling potential The choice of any jet equipment will be rather than acting as a feeder service to passengers the road distance to their final heavily influenced by the commercial deal international destinations. Neither destinations from a selection of airfields which accompanies it. "The perspectives TAM's traditional customers nor its new served by TAM. on world finance are so grey that in the recruits need a quick connection to final analysis you may not buy the aircraft Early mistakes Tokyo; they want regular, dependyou need, but the one you can afford. . . . able—and above all —friendly service to Inevitably, the airline's reputation has I would rather have a small company in the next town. been hard won, and achieved despite some my hands than a big company in the TAM has striven persistently to build early mistakes. The biggest of these was hands of the banks." up a close relationship with the people it made in its first year of operation, when Assuming that the manufacturers will serves. Friendly local offices, an "on-time" TAM parked aircraft overnight at interior barter aircraft for sugar cane, or find some reputation, and giving passengers "001 cities, ready to fly passengers into Sao other way round the problem, which priority" have lead to a constant stream of Paulo in the mornings. It transpired that aircraft does Amaro prefer —the 146 or letters from communities asking for TAM the traffic was out of Sao Paulo in the the F.28? "Between the two, I would mornings. to serve their locality. rather have the 737," he jokes, but admits that the Boeing is too big. "The F.28 is 20-year-old technology, but it is reliable". TAM operates 11 Bandeirantes, and will buy the Brasilia It is also compatible with the F.27s in TAM's existing fleet, some of which would presumably be traded in for jets. Modern technology The 146 represents a big questionmark for Amaro. Apart from an aversion to four engines, he is worried about continuity of production. Its modern technology is a plus factor, but it is only available new; the F.28 offers him the ability to mix new and used aircraft. Meanwhile, four 48-seat F.27s and two 60-seaters share the TAM network with I I Bandeirantes, flying eight million km per year on median stage lengths of 450km and 340km, respectively. Daily utilisation is about 6hr 50min, including night mail runs. Besides jets, TAM has a real need for an aircraft such as the Brasilia. "There is no pressure as such to buy the Brasilia. The only pressure we accept willingly is the market pressure. . . . The Brasilia is perfect for some routes, and we will buy it. FLIGHT International. 17 September WK1
"We have operated the Bandeirante for a long time, the factory is close, and if the Brasilia is as good as the Bandeirante, there is no reason for us not to use it. .. . If the Brasilia had been done before, we would be flooded with them." Amaro is a staunch advocate of free enterprise, and an admirer of Margaret Thatcher. He disapproves of regular blanket salary increases decreed by the Brazilian Govenment as the economy continues its inflationary spiral. To keep cash within the company, TAM employees were offered the chance to spend their last mandatory pay rise on company shares. Acceptance rate was 100 per cent.
T-^)
TABA: no other way to go W
hile the Brazilian economy stagnates, and the major airlines —Varig, Cruzeiro, VASP, and Transbrasil —prune their domestic flights, one of the five second-line carriers, set up in the mid-1970s under the Government's regional air policy, continues to grow by at least 20 per cent per year. That airline is TABA —the Amazon Basin Air Transport Company —which came into being because the major domestic airlines abandoned many of their local routes when they bought jets, and relinquished the aircraft which could operate into the dirt fields of Amazonia. Now, after seven years of spectacular growth, TABA is poised to become the first of the five Brazilian regional carriers to move into the jet age themselves, with the acquisition of two British Aerospace 146s. Airline president Marcilio Gibson considers them to be eminently suitable for service over the vast geography of TAB A's network. Since it was founded, the number of passengers carried by TABA has risen from 44,000 to more than a quarter of a million, while destinations served have
5 0 0 nautical | miles
Brazil is served by five regional airlines, as well as by the four major trunk carriers. The regional networks — operated by TAM, TABA, Votec, Nordeste. and Rio Sul — have grown substantially sinc the mid-Seventies, when jet re-equipment forced the trunk airlines to abandon many local routes more than doubled from 19 to 40. Such has been its growth that TABA has increased its fleet from the five Beech 18s and ten Bandeirantes operated in 1977, to the point where the Bandeirantes now complement seven Fairchild FH227s. A further two Fairchilds will also be acquired as well as the 146s, which are scheduled to enter service in December. The fundamental reason why TABA has grown so fast is that dozens of largescale development projects have been moving ahead steadily in the Amazon region (and several have already come to fruition) despite the stagnating, and even shrinking, economy in the developed
south-east of Brazil, where TAM plies its trade. Amazonia is by far the largest of the five areas designated under the Government's regional airline policy, and takes in not just the Amazon basin itself, but those of several major tributories to the south. Located within TABA's network are major undertakings such as the 4000MW Tucuriu powerplant, which will soon provide power for two big aluminium processing plants under construction at Sao Luis and Belem. There are bauxite and tin mines beneath TABA's skies, as well as goldfields where tens of thousands of miners are trying their luck. There are
Backbone of today's TABA fleet is the FH-227
FIJdHT International, 17 September 19H
engine problems arise so far from home, the 146 is capable of taking off and returning to Belem for repairs on three, while the F.28 would have to remain until help was brought. Gibson also considers that it will be far easier to work on the 146 engines while they are still on the wing and that, almost invariably, problems will be in only one of the three modules, which can be removed and replaced without taking out the complete engine. Another advantage he cites is that the 146 can carry a spare engine in its own hold, while the F.28 cannot do so. The ability to dispense with ground support is a prerequisite for operations in Amazonia.
High utilisation
TABA is scheduled to take delivery of its first BAe 146 towards the end of this year
huge cattle ranches, new ports, transmission lines, slaughterhouses and towns. One fundamental element of a modern economy is missing, however, because there are no railways at all, and the flimsiest network of roads is often unusable in the long months of the rainy season. So, when people are in a hurry, they have no alternative but to go by air. The massive Jari forestry and cellulose project, which now employs 8,000 staff, and supports many more, can only be reached by air or by river, and to get to one of the towns served by TABA, passengers have a stark alternativespend 38 days on a river boat.
higher than those allowed for the jets, on journeys of the same distance. This is one factor which has allowed TABA to build itself up from such small beginnings to the present position where it is worth an estimated $80 million in assets, has made profits for its family owners of $2 million in 1981 and 1982, and has reached the point where not even the Fairchilds are adequate for the traffic density on the major routes.
Jet equipment
It was Bruno Gibson —TABA's commercial director, and son of the founder —who set about looking for the most suitable jet aircraft for his business. Air-taxi origins The list started off with four names on TABA was the only company to tender i t - t h e Boeing 737-100, the McDonnell for the Amazon region air service. It had Douglas DC-9-40, the Fokker F.28, and previously been just a simple air-taxi the BAe 146. operator, like many others in the area. The two American aircraft were Founded by Marcilio Gibson —known excluded almost immediately, because the universally as "The Colonel" —it flew typical TABA stage length is only 550km. mainly to points on the River Amazon When it came to the merits of the two between Belem (its present headquarters) European contenders, Gibson told Flight and Manaus. that the main factor which influenced him Since that time, TABA has never was his perception that the F.28 is at the looked back — aided in its growth not only end of its development life, with few by local industrial development, but by further advances likely to be incorporated Government policy which provides all five into future models, while the 146 is at the regional airlines (Votec, Nordeste, Rio beginning of its life, and is of an entirely Sul, TAM, and TABA) with a degree of different generation. subsidy to enable them to establish the As far as TABA is concerned, the main required level of services. Some 3 per cent advantage of the 146 is ease and economy of the revenue from the major airlines' of maintenance. The company operates internal services is transferred to the five four bases —at Belem, Manaus, Porto second-level carriers on a proportional Velho, and Cuiaba —but there are stages basis, while the small companies are also which put the aircraft more than 3,500km permitted to charge fares up to 25 per cent from the main base, at Belem. Should
TABA's historic growth Year Fleet size Hours flown Km flown Pax carried Cargo carried (kg) Cities served System load factor
(%)
1976
1977
1978
1979
1980
1981
15 5.841 1.521,751 44,373 433,547 19 55
19 11,673 3.339,145 91,489 768,274 24 57
17 14,671 4,169,867 118,416 1,332,293 29 60
14 16,307 4.669,405 132,187 1,577,373 34 57
16 18,858 5,630,017 180,509 1,404.174 37 58
15 22,515 6.817,044 259,900 2,492,645 40 H
The Beech 18s were phased out of regular service by 1979 and all services are now undertaken by Bandeirantes and FH-227Bs
FLIGHT International. IT September 7.9H3
The 146s will be rented during 1984, and, if they are as satisfactory as Gibson anticipates, the purchase will start in 1985. He plans to fly each 146 on 15 sectors a day, for a utilisation of 250hr per month. One will fly the Belem, Manaus, Tabatinga route; the other from Belem to Cuiba and Porto Velho. Being so far from the developed areas of Brazil (it is a 4^hr flight to Sao Paulo), TABA has had to develop its own maintenance services, to become as selfsufficient as possible. The airline has trained men from the Amazon region, and, as with traffic, growth figures are dramatic. There were 40 staff in 1976, when the company was formed. Now there are 560, with a further 600 contract staff employed at the various airfields, and in ticket offices and agencies. The company is able to carry out its own maintenance work on propellers, landing gear, gearboxes, and airframes, and it does 70 per cent of the electrical and electronics work. The only major components of the Bandeirante and FH-227 which TABA does not maintain are the engines. S3
TABA commercial director Bruno Gibson (seen here with wife Lucia) says that the 146 is well suited to his extensive route network